Thinking about the Institutional Dimensions of Climate Change Policy

Most economists tend to neglect the institutional and political dimensions of proposed climate change policies, whereas political scientists, policymakers, and stakeholder groups frequently give primary attention to these considerations.  This is demonstrated by my recent podcast conversation with Navroz Dubash, professor at the Centre for Policy Research in New Delhi, and a Coordinating Lead Author of the Sixth Assessment Report of the Intergovernmental Panel on Climate Change.  You can listen to our conversation in the latest episode of my podcast, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program.”  Our full conversation is here.

In these podcasts, I converse with leading experts from academia, government, industry, and NGOs.  Navroz Dubash fits well within this group, as a respected international expert on the politics of climate change policy and governance, the political economy of energy and water resources, and the regulatory state in the developing world.  In addition, he was previously a senior associate at the World Resources Institute and a policy analyst at the Environmental Defense Fund.

In discussing pragmatic frameworks necessary for the implementation of effective climate change policy, Dubash explains why international institutions are absolutely essential.

“Climate change in a sense is now a problem with a clock. We have a ticking clock if you’re going to meet two degrees, and even more so if you meet [the goal of limiting the increase in global temperatures below] 1.5 degrees. It’s not enough for every country to do what they can. We have to be measuring progress against what is determined to be necessary by science. So, we have to have some process through which policies and actions are assessed and evaluated.”

This is where, Dubash says, international institutions and rules have a critical role to play.

“What is the mechanism through which future [emissions reduction] targets translate into current action? There needs to be some kind of interlinking mechanism through which we both decide what target is reasonable, as well as think back to what we have to do today in order to achieve those targets. And if there are obstacles to that action, how we overcome those obstacles? All of those tasks really require institutions,” he says.

I ask Navroz to talk about the differences between China and India, since they are sometimes (incorrectly) lumped together in conversations about climate change.  He describes the differences in the context of both countries attempting to reduce their emissions in line with the goals of the Paris Climate Agreement.

“In a sense, China has now over the last 20 years built up its infrastructure to the point where it can start thinking about in a sense what the transition is to a low carbon future. India has actually not built up its infrastructure. And we are an interesting place because our emissions are likely to grow for a while longer in order to meet development needs. Now, the trick is going to be how can India do this with a shallower increase in emissions than China exhibited?,” he says. “To unwind a coal or fossil economy actually will have ripple effects throughout the larger political economy of India. And so that it’s not just the economic costs that matter, but also the transaction costs.”

Navroz Dubash remarks that the long-term potential for climate policy to succeed depends heavily on the internal politics in nations that have voluntarily pledged under the terms of the Paris Agreement to reduce their carbon emissions in coming years.

“I think the positive part of Paris for me was that it essentially recognized that progress on climate change is not going to come because of hectoring or peer pressure at the international level. It’s going to come because national politics in country after country shift, where countries find ways of telling a story about how low carbon futures are good for them economically and can sell that politically to their own people. And Paris basically gave countries space to figure out how to tell that story and make it happen.”

For this and much more, I hope you will listen to my complete conversation with Navroz Dubash, the 31st episode in the Environmental Insights series, with future episodes scheduled to drop each month.  You can find a transcript of our conversation at the website of the Harvard Environmental Economics Program.  Previous episodes have featured conversations with:

“Environmental Insights” is hosted on SoundCloud, and is also available on iTunes, Pocket Casts, Spotify, and Stitcher.


A Call for Pragmatic Climate Policies

Economists, including myself, have long favored carbon-pricing policies – either carbon taxes or cap-and-trade – as the best approach to reducing emissions of carbon dioxide (CO2) in large, complex economies – on the basis of:  feasibility of limiting emissions from hundreds of millions of point and non-point sources; short-term cost-effectiveness in the face of highly heterogeneous abatement costs associated with highly diverse sources; and long-term effectiveness and efficiency by bringing about carbon-friendly technological change. 

Although economists would therefore argue that carbon-pricing policies will be a necessary element of a truly meaningful policy portfolio, they would not claim that they will be sufficient, partly because of the presence of other market failures (such as principal-agent problems in the context of energy-efficiency technology adoption decisions in renter-occupied properties, and information spillovers leading to insufficient private investments in research and development).

But there is another reason for the insufficiency of carbon-pricing policies, and that reason is captured by a single word:  politics.  It has become increasingly clear that in the United States carbon-pricing policies do not have sufficient constituencies among either conservative Republicans or “progressive” liberal Democrats to become a central element of meaningful climate change policy.  Hence, there is increasing recognition – even by economists – that more attention needs to be given to other, so-called “second-best” policies, which may be more costly but will also be more politically feasible.

This point is made in compelling fashion by Gilbert Metcalf, Professor of Economics at Tufts University and a long-time analyst, expert, and advocate of the use of carbon taxes, in the latest episode of our podcast, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program.”  You can hear Gib’s plea for broader thinking by listening to our conversation here.

In these podcasts, I converse with leading experts from academia, government, industry, and NGOs.  Gib Metcalf fits well in this group, as a long-time Professor of Economics at Tufts, a Research Associate at the National Bureau of Economic Research, a University Fellow at Resources For The Future, an Associate Scholar of the Harvard Environmental Economics Program, and a former Deputy Assistant Secretary for Environment and Energy at the U.S. Department of the Treasury (2011-2012).  He has spent much of his career working on policy design and evaluation in the area of energy and climate change, both in academia and government.

Gib Metcalf’s call for pragmatism and broader thinking on climate change policy by the economics community is particularly striking (and compelling) because of his extensive analysis over more than a decade and his strong advocacy for the development of a U.S. carbon tax.  This is exemplified by his excellent 2019 book, Paying for Pollution: Why a Carbon Tax is Good for America (Oxford University Press). 

As a longtime proponent of a carbon tax to affix a social price on CO2 emissions, Metcalf is particularly convincing when he acknowledges in our conversation that he is now convinced that a carbon tax is not a practical option in today’s exceptionally partisan political climate.

“I am a firm believer that we should do the most efficient policies possible, and I think carbon pricing is precisely the way to do that. I prefer a carbon tax to cap-and-trade, I think for a number of reasons … but the political environment is such that, that’s just not going to happen,” he says. “And meanwhile, the concentration of greenhouse gases in the atmosphere continues to rise. So given, that I think we are obligated, those of us who care about the climate, to promote policies that will reduce emissions now, even if they’re not necessarily our most desirable policies.”

So, Metcalf argues that the Biden Administration should consider regulatory actions and executive orders in addition to statutory subsidies to give polluters incentives to seek cleaner energy alternatives.  Commenting on the serious legal challenges that some regulatory initiatives are likely to face (particularly given the 6-3 conservative majority on the U.S. Supreme Court), he offers a cause for optimism:

“I see less of a problem with fuel economy standards [by] ratcheting those up. So, we can do something in transportation.  I think we’ll [also] use tax credits in the electricity sector instead of regulation and perhaps we’ll do the same in buildings, but that gets to the third leg of what I would call a policy tripod in a third best world, which is R&D spending. And here, I think the R&D spending really needs to be focused on the technologies that have the greatest potential to lower the cost of clean energy.”

Gib Metcalf argues that production tax credits can be used to encourage further development of clean energy options, including wind power, but they should be designed in a way that will account for the increasingly negative impacts of carbon emissions.  

“My recommendation is that we ought to tie that tax credit to the social cost of carbon.  Given the official social cost of carbon numbers that the Biden Administration is using, that would be about a two and a half cents per kilowatt hour production tax credit. So, it doesn’t change the [tax] credit now, but as the social cost of carbon rises over time, then the production tax credit should rise over time.”

Gib Metcalf and the author on a panel at COP21 in Paris in 2015

At the end of our conversation, I ask Gib Metcalf for his thoughts on the current, prominent youth movements pressing for more aggressive action on climate change.  His response is that he was initially skeptical about their impact, thinking of them as little more than a “side show” to meaningful action through the international climate negotiations, for example.  But that is no longer the case.

“I’ve actually changed my mind entirely.  I’m more pessimistic [now] about where the negotiations will get us given the urgency of action. But the youth movements, Greta Thunberg and others, are really, to me, incredibly important in that they are driving public opinion and bringing media attention to the problem, in a way that I think is extremely valuable.  So, I see them as just absolutely essential.”

I raise the question of whether this very prominent youth activism is an age effect (hence likely to become more moderate as young people become adults) or a cohort effect (likely to retain its strength over time).  Gib responds that the young people involved in these climate movements are likely to remain engaged.

“I think the current youth movements see a very clear stake for themselves in terms of the damages that we’re seeing in the world today because of climate change. So, I think that gives them a more enduring stake that may outlast their youth.”  

That’s an excellent, optimistic note on which our conversation comes to a close.

For this and much more, I hope you will listen to my complete conversation with Gib Metcalf, the 30th episode in the Environmental Insights series, with future episodes scheduled to drop each month.  You can find a transcript of our conversation at the website of the Harvard Environmental Economics Program.  Previous episodes have featured conversations with:

“Environmental Insights” is hosted on SoundCloud, and is also available on iTunes, Pocket Casts, Spotify, and Stitcher.


A Particularly Valuable Perspective from Europe on COP26

In an essay following my return from COP26 in Glasgow, Scotland, and more recently in a Q&A in the Harvard Gazette, I offered my views on what happened (and what did not happen) at COP26 last month in Glasgow.  But given the leadership of the European Union on climate change policy, a European perspective is exceptionally important.  Fortunately, in the most recent webinar in our series, Conversations on Climate Change and Energy Policy, sponsored by the Harvard Project on Climate Agreements (HPCA), we featured a conversation with Dr. Laurence Tubiana, the well-known French economist who was France’s climate ambassador at the time of the negotiations that led up to the signing of the Paris Agreement in 2015.  A video recording (and transcript) of the entire webinar is available here.

As you know, in this webinar series we feature leading authorities on climate change policy, whether from academia, the private sector, NGOs, or government.  In this most recent Conversation, I was fortunate to engage with someone who has had solid experience in at least three of these sectors – academia, government, and the NGO community. 

Laurence Tubiana, who received her PhD in economics from the Sorbonne, and served as France’s Climate Change Ambassador during the 21st  UN Framework Convention on Climate Change (UNFCCC) Conference of the Parties (COP21), when the Paris Agreement was signed, is currently CEO of the European Climate Foundation.

In our conversation, Laurence begins by maintaining that while the recent COP26 talks in Glasgow did not produce any breakthrough pacts, those talks represented a real step forward.

“We are making slow progress…130 countries have committed to a target net-zero [emissions] by 2050 or soon after,” she says. “Very few, almost none, are backed or substantiated by any kind of precise pathway to get there, so that is why short-term action is more important than ever.”

One positive development from Glasgow, Dr. Tubiana reports, was the commitment by the signatories to the Paris Agreement to update their Nationally Determined Contributions (NDCs) in time for COP27, scheduled for next year in Egypt (although it should be noted that the United States, the European Union, and the United Kingdom have subsequently indicated that they would not be producing new NDCs with enhanced ambitions one year from now).  As I’ve written in my two previous blog posts, countries agreed to accelerate “efforts towards the phase-down of unabated coal power and inefficient fossil fuel subsidies,” and to try to increase their monetary contributions to developing countries to help them cope with the effects of climate change and make the switch to clean energy.

When I ask Laurence for her thoughts about the prospects for the multilateral development banks to contribute significantly to the climate change fight, Tubiana expresses some doubts.

“The international financial system nowadays is not fit for the problem of the climate challenge we face. We are talking about three to four trillion [dollars] a year in additional investment on the global level for this ecological transition and the international financial system is not responding and maybe cannot respond in this actual form,” she says. “So called ‘green finance’ is around two percent of the global financial markets, so with that we cannot respond [adequately] to the challenge.”

Tubiana lauds the dramatic speech delivered at COP-26 by Barbados Prime Minister Mia Mottley, in which she called upon those nations that have contributed most to global emissions to take immediate responsibility for the climate change challenge and to assist those nations most at risk. Mottley stressed that island nations suffering from extreme weather events every few years do not have the economic capacity to rebuild every time and to pay back the debts they would incur if they tried.

At the end of our conversation, when I ask about grassroots youth climate activism, Laurence Tubiana remarks that she understands their anxieties as they face a very uncertain future. 

“They feel that their demonstration in the streets isn’t working enough. Governments aren’t responding to what they’re asking for,” she says. “We are failing them, and we are failing them not only because we aren’t active enough on climate change, but because we don’t offer them the political pathways to participate and make their voices hear in the political system.”

All of this and much more can be seen and heard in our full Conversation here.  I hope you will check it out.

Previous episodes in this series – Conversations on Climate Change and Energy Policy – have featured Meghan O’Sullivan’s thoughts on Geopolitics and Upheaval in Oil Markets, Jake Werksman’s assessment of the European Union’s Green New Deal, Rachel Kyte’s examination of “Using the Pandemic Recovery to Spur the Clean Transition,” Joseph Stiglitz’s reflections on “Carbon Pricing, the COVID-19 Pandemic, and Green Economic Recovery,” Joe Aldy describing “Lessons from Experience for Greening an Economic Stimulus,” Jason Bordoff commenting on “Prospects for Energy and Climate Change Policy under the New U.S. Administration,” Ottmar Edenhofer talking about “The Future of European Climate Change Policy,” Nathaniel Keohane reflecting on “The Path Ahead for Climate Change Policy,” and Valerie Karplus talking about “The Future of China’s National Carbon Market.”

Watch for an announcement about our next webinar. You will be able to register in advance for the event on the website of the Harvard Project on Climate Agreements.